The Components of a Financial Account

The components of a country's financial account are its domestic ownership of foreign assets and the foreign ownership of its domestic assets. A country's financial account is the portion of its balance of payments that account for the increases and decreases in the international ownership of assets. Ownership is comprised of individuals, business, the government or the central bank. The assets under ownership include securities such as stocks and bonds, commodities such as gold and currency, and direct investments.

This is in contrast to the other components of a country's balance of payments, which track financial transactions that don't affect income or savings, and the international trade of goods and services.

The first component of a country's financial account is the domestic ownership of foreign assets. If this component increases, it means that there is more domestic ownership of foreign assets, and the financial account will increase.

The domestic ownership of foreign assets subaccount is further broken down into three components: private, government and central bank reserves.

The second component of a country's financial account is foreign ownership of domestic assets. If this subaccount increases, it means that there is more foreign ownership of domestic assets, which will decrease the financial account.

The foreign ownership of domestic assets is further broken down into two types of ownership: private assets and foreign official assets.

These two subaccounts are important because they make up the financial account and can help offset a trade deficit.